Buy This Banking Stock For A 40% Upside Target, Says Emkay Global

For those willing to take a risk, it is a great idea to buy into banking stocks ahead of the Monetary Policy Committee meet. However, even for those willing to take a long term view, some banking stocks maybe good bets. Broking firm Emkay Global is bullish on the stock of Bandhan Bank and has recommended a buy on the stock. Here are some reasons to buy the Bandhan Bank stock, says the brokerage firm.

Target price of Rs 410, Says Emkay Global

Current market price	Rs 299
Target price	Rs 410

Despite elevated provisions, Bandhan Bank reported a beat on net profits at Rs 3.7 billion, according to broking firm, Emkay Global.

"Current and Savings Account remains high and healthy at 43%, which coupled with lower interest reversals as the bank did restructuring instead of NPA recognition, led to healthy margins of 8.5% vs. 6.8% in Q4. Factoring in the higher focus on collections and possible pull-out in Assam, we trim our loan growth estimate for FY22 to 14% from 22%," Emkay Global has said.

 

 

Unlocking of Assam/WB and clarity on Assam relief scheme to moderate incremental stress formation

Bandhan Bank reported higher gross slippages of Rs 16.2 billion (9.6%) but higher recovery/upgrade at Rs 9.9 billion moderated GNPA increase to 138 basis points qoq to 8.2%. The bank did not undertake ECGLS/top-up loans, but has done heavy restructuring (6% of loans) with the cumulative pool now standing at 6.6%. As per the bank, nearly 84% of restructured customers are paying (partly though), and thus the relapse rate remains low- to moderate. Overall collection efficiency (CE) stood at 89% (86% in Q1FY21) and the SMA pool (8-90DPD) at a high of 12.5% (8.6% in Q4).

Raising target price to Rs 410, says Emkay Global

"We raise our target price to Rs 410 from Rs 390, rolling forward to 2.5x Sep'23E ABV. Key risks to our estimates/call, remain higher-than-expected NPA formation, including lower recovery from the Assam portfolio, and unsettling of growth momentum due to a potential 3rd Covid wave," the brokerage has said.

	FY 2022	FY 2023	FY 2024
EPS	Rs 17.66	Rs 27.9	Rs 41.2
P/E	16.5	10.4	7.1
P/ABV	2.6	2.1	1.6

Disclaimer

Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets are near record highs.